A tidy way to turn market dogs into timely ETFs bets

Mitch Goldberg, financial advisor and president of ClientFirst Strategy

Tuesday, 1 Apr 2014 | 9:39 AM ETCNBC.com

SHARES

Look at a table of the worst-performing equity exchange-traded funds (ETFs) and you're likely to see this landscape of market dogs littered with global and emerging markets equity portfolios.

That's a great way to begin looking for bargains in stocks.

In fact, any investor can act as their own value equity "ETF strategist" simply by digging through the most beaten down of the ETF bunch to find the best opportunities for stock growth.

Lois & bob Schlosky | The Image Bank | Getty Images

I don't necessarily like or dislike ETFs. To me they're just another tool that other investors and I rely on to potentially achieve our investment objectives. So let me cut right to the chase and reveal the reasons I use them.

—To invest in areas where I don't feel I have the expertise or confidence to choose individual securities.

—So I can use different kinds of limit orders to set the conditions in which I buy or sell them. I'm talking about below-the-market buy-limit orders, stop orders, trailing orders and the like.

—To use my experience and creativity to mix and match different ETFs to be a globe-trotting bargain hunter.

To be sure, on that last one, I am not saying this is as simple as looking at the worst-performing ETFs and to just investing in those—remember, that's just the first step. There are reasons behind the poor performance. You know it isn't easy to separate value plays from value traps. Still, opportunities arise when things go awry.

Take, for example, Market Vectors Egypt Index ETF, which retreated about 52 percent due to the upheaval from the Arab Spring in 2011 and then advanced about 45 percent in 2012. Another example is iShares MSCI Italy Capped ETF, which has a chart for all of 2012 that looks like a V with the bottom in June during the height of the European debt crisis. The back half of that V represents a near 45 percent gain in about 6 months' time.

Country ETFs to watch

Ticker

Fund Name

2013

YTD

2012

TUR

iShares MSCI Turkey

-27.30%

-0.70%

65.60%

EPU

iShares MSCI All Peru Capped

-25.40%

-5.80%

24.20%

ECH

iShares MSCI Chile Capped

-23.90%

-3.50%

11.30%

EIDO

iShares MSCI Indonesia

-23.30%

21.60%

4.50%

IDX

Market Vectors Indonesia

-23.20%

18.20%

2.40%

EWZ

iShares MSCI Brazil Capped

-17.50%

0.50%

0.40%

FBZ

First Trust Brazil AlphaDex

-15.70%

-2.50%

7.50%

GXG

Global X FTSE Colombia 20

-15.00%

2.50%

27.40%

THD

iShares MSCI Thailand Capped

-14.60%

6.10%

40.20%

COLX

Market Vectors Colombia

-11.20%

2.80%

23.30%

Source: ETF.com

Behind many of these recovery stories are deep-pocketed institutions like the IMF, and central banks like the ECB, aiding country and regional economies past their respective crises. I believe this kind of deep-pocketed support will continue, which is a key element of bullish support when investing abroad.

Another trend to consider is continued stimulus in China and continued growth from the U.S. economy—there's a link to natural resources companies when these ETFs have been on the losing end of the performance race, which many were last year.

So there you go. You can invest anywhere and anytime to your heart's content. This, to me, is the biggest change I have seen in my 24-year career serving individual investors. The world is a small place—and getting smaller. The advantages offered by ETFs don't necessarily mean investors will automatically improve their returns, and to date I have seen zero evidence that using ETFs individually or as part of a package has led to better returns. But for those investors who believe as I do—that strategy is often more important than the individual components—ETFs can potentially help investors create personalized strategies that are more aligned than ever with their individual goals and risk tolerance.